JPMorgan's Streamlining Continues: Sells HSAs to Webster - Analyst Blog

JPMorgan Chase & Co. (JPM) signed a definitive contract with Webster Financial Corp. (WBS) to sell the health savings account (HSA) business managed by its subsidiary – JPMorgan Chase Bank, N.A. The price and terms of the deal were not divulged by the company.

Details

Per the agreement, JPMorgan will transfer around 700,000 HSAs to Webster's subdivision HSA Bank. Though the purchase price was not revealed, the cash transaction comprises roughly $1.3 billion in deposits and $175 million in investments.

Moreover, the deal is subject to regulatory approval and customary conditions.

Why the HSA sale?

The present deal comes as part of JPMorgan's intention to sell its prepaid card business, which includes all Corporate, U.S. Public Sector and Electronic Benefit Transfer (EBT) programs, as well as HSAs, which it announced in Jan 2014.

Since then, JPMorgan has sold off certain non-strategic businesses. Notably, in Jul 2014, the company announced the divestiture of its Corporate Dealing Services business to the U.K.-based The Equiniti Group. Previously, in Mar 2014, JPMorgan entered into a definitive agreement with Mercuria Energy Group Limited to vend off its physical commodity trading business for $3.5 billion.

The decision of these sales was triggered by the company's strategy of streamlining operations and focusing on core businesses to propel profitability in the future. This divestiture seems suitable for JPMorgan given the persisting fundamental pressure and the overall adverse macroeconomic scenario. However, JPMorgan does not expect this transaction to adversely affect its earnings.

What the Deal Holds for Webster

Webster, the parent company of Webster Bank, believes that incorporating these acquired HSAs will further strengthen HSA Bank's position as a key provider of such accounts. HSA Bank, a division of Webster Bank, is a leading administrator and depository of HSAs with around $4 billion in assets under administration in more than 1.4 million accounts.

Moreover, Webster expects this acquisition to result in loan growth as well as moderate increase in earnings and return on equity. Also, the company looks ahead to utilize about 60% deposits to meet its short-term borrowings and the remaining funds for investments in securities.

Our Viewpoint

On one side, sale of HSAs will assist JPMorgan in concentrating on its prime businesses and accelerating growth going forward. While on the other side, it will help Webster capitalize on the growing demand for HSAs driven by rising healthcare costs and available tax benefits.

Currently, JPMorgan holds a Zacks Rank #2 (Buy). Some better-ranked banks include Northrim Bancorp Inc. (NRIM) and Banc of California, Inc. (BANC). Both these stocks sport a Zacks Rank #1 (Strong Buy).

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